ExpertHard1 markMultiple Choice
CPA · Question 46 · Area V: Entity Taxation
A taxpayer is a 50% partner in a partnership. The partnership agreement states that the taxpayer is guaranteed a payment of $20,000 for services, plus 50% of the partnership income after deducting the guaranteed payment. The partnership reports $60,000 of income before the guaranteed payment. What is the taxpayer's total income from the partnership?
A taxpayer is a 50% partner in a partnership. The partnership agreement states that the taxpayer is guaranteed a payment of $20,000 for services, plus 50% of the partnership income after deducting the guaranteed payment. The partnership reports $60,000 of income before the guaranteed payment. What is the taxpayer's total income from the partnership?
Answer options:
A.
$30,000
B.
$50,000
C.
$40,000
D.
$20,000
How to approach this question
1. Deduct Guaranteed Payment from Income ($60k - $20k = $40k). 2. Allocate remaining income ($40k * 50% = $20k). 3. Add Guaranteed Payment to allocation ($20k + $20k = $40k).
Full Answer
C.$40,000✓ Correct
C
Income after guaranteed payment = $60,000 - $20,000 = $40,000. Partner's share of income = 50% x $40,000 = $20,000. Total income to partner = Guaranteed Payment ($20,000) + Distributive Share ($20,000) = $40,000.
Common mistakes
Forgetting to deduct the guaranteed payment before calculating the profit share.
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